Getting Up To Speed In The Landlording Race

By: Wojciech Kic

How fast is a typical marathon run? Obviously it depends on who you ask. For example, the world record for a marathon race is just over 2 hours. While there may be some differences in the type of person who chooses to run a marathon, a typical marathon is run in just under 5 hours.

But the marathon race is only the final step in the long-term training plan of a person willing to be a marathon runner. To become a marathon runner, one must first make the decision to participate in the sport. This decision involves a review of the time available to make the commitment; an adjustment of activities competing for available time; a discussion with family and friends; and a plea for their support. Separately, obtaining clearance from a family physician may not only prevent an unexpected injury, but also give a confidence boost, and a clear vision that only the completion of training is necessary to accomplish this life-enhancing goal.

The real question then for those wishing to succeed is not how long it takes to run the last 42K leg of the marathon, but exactly how much time overall it takes to get there. If the starting point of the marathon is the idea to participate, a prospective runner must first subordinate other daily tasks including diet, sleep schedules, and even career planning to make time to train for it. Thus we could say that if a person starts dreaming about a marathon about a year before the final 42K leg of the initial run, the first marathon takes no less than one year.

But, at the very least, a marathon race is measurable. Whether the starting point of the run was one, or five years ago, we can agree that running the last 42K, of the race, completes it. In contrast, when it comes to the world of landlording, the length of a marathon is more difficult to define.

To help measure the length of the landlording race, let’s first look at the landlord’s typical characteristics: 40 years of age or older, income in excess of consumption requirements, college educated, and professionally-oriented. They exit the business some 25 years later, often with strong capital gains, and a nice cushion toward retirement or a gift toward ever-needy, grown children. But sometimes landlords exit the business much sooner, disgusted with a loss, dismayed at a lost opportunity, and often disheartened by the easy gains of less business-minded friends.

What motivated both landlords was an opportunity created by a person willing to be their tenant. A typical tenant has a solid income, acceptable credit, and a family of their own. She may stay at a rent house for as long as three years. This tenant does not want to own a house; she prefers to invest personal profits elsewhere. At the end of three years, the tenant may find another rent house, sometimes, but not always, in the same neighborhood.

But there is another tenant out there. On occasion he may have solid income, acceptable credit, and a family of his own. He may also stay at a rent house for as long as three years. This tenant also does not want to own a house; he does prefer to invest personal profits elsewhere. The difference between the two tenants is that the latter tenant desires his landlord’s profits, and a bad tenancy results.

These tenants independently perceived an opportunity with each landlord; they took advantage of one, while creating profits for the other. How did this happen? For selfmanaging landlords, both outcomes were created by random chance.

And it is through random chance that we can measure the length of a landlording marathon race. If a typical “good” tenant lasts three years and a “bad” tenant is 1 in 5, then, statistically, a landlord will experience one bad tenant in every 12 year cycle. Once you combine the tenancy of good and bad tenants into a single run we can estimate the “natural” run of a landlording marathon at no less than 15 years!

In a random good/bad tenant distribution, every landlord will experience the same level of profits. But we also know that while statistically heads prevail only 50% of the time, random tests will also show tails winning as many as 10 flips in a row. Through this sequentially, uneven luck distribution, we can ascertain that both winning and losing landlords will often enter and exit the business, without knowing that both outcomes occurred despite any effort to create it.

What causes this failure is a lack of experience with respect to the length of the landlording marathon. The early presence of luck blinds the landlord to the need for better preparation for the 15-year trek; while an early disaster unnecessarily convinces a novice landlord that the race is rigged. Learning the art of landlording, after a purchase is made, is “a day late and a dollar short.” Desperate to prevent bankruptcy, landlords enter into dubious arrangements with real estate sales agents, who pledge “one stop” solutions including advice about how to get out of the race.

For landlords who want to tend to their properties and make them predictably more profitable, it starts with the acceptance that they are in this business for the long-haul. By recognizing the time dimensions of the race, they quickly learn to better project the long-term impact of their landlording decisions, and quickly recognize the random message of a bad lease before it begins.

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